A worker inspects copper wire at a warehouse in Bor, Serbia. Some analysts forecast an end to big gains in commodities. Photo: Bloomberg

The biggest advances in commodities this year may be over because of mounting concern that policymakers are not doing enough to bolster economic growth at a time when producers are expanding supply.

The Standard & Poor's GSCI gauge of 24 raw materials will end the year at 677, little changed from now, based on the median of 10 investor and analyst estimates compiled by Bloomberg. The index is about 2 per cent lower since the European Central Bank (ECB) unveiled an unlimited bond-purchase programme on September 6, and 4 per cent below its level when the Federal Reserve pledged a third round of debt-buying a week later.

That contrasts with a 92 per cent surge from the end of 2008 up to June last year as the Fed bought US$2.3 trillion of debt in two bouts of quantitative easing. The impact will probably be smaller this time, Barclays says. Prices are already in a bull market, the 17-nation euro zone is contracting and China has slowed for six consecutive quarters. Europe and China represent about 60 per cent of global copper demand and about a third of crude-oil consumption.

"The investment demand that might be driven by people's changed perception after Fed action is not going to sustain a further long-term move of the commodity complex," said Michael Aronstein, the president of Marketfield Asset Management in New York who correctly predicted the slump in prices in 2008 and the rebound in 2009. "The longer you keep prices in all of these sectors elevated, the more supply you recruit."

The S&P GSCI rose 2 per cent this year, heading for a fourth consecutive annual advance. Soya beans and wheat led the gains after the worst US drought since 1956. The MSCI All-Country World Index of equities jumped 13 per cent and the US Dollar Index, a measure against six major trading partners, dropped 1.4 per cent. Treasuries returned 1.4 per cent, a Bank of America index shows.

Commodity assets under management reached US$406 billion at the end of July, from US$399 billion at the start of the year, based on Barclays' estimates of money tied to exchange-traded products, medium-term notes and indices. Assets reached a record US$451 billion in April last year.

Morgan Stanley is forecasting supply surpluses in aluminium, nickel, zinc and thermal coal next year, and Barclays expects a glut in lead for at least a third consecutive year. The rally in aluminium and zinc makes production cuts in China less likely, prolonging excessive production, Macquarie Group said in a report this week.

While the Paris-based International Energy Agency anticipates record demand for oil next year, it said in a recent monthly report that inventories had become "more comfortable".

Gold will probably be among the biggest winners from quantitative easing, say JP Morgan Chase, Standard Bank Group and Credit Suisse Group. Some investors buy bullion as a hedge against inflation and a weaker dollar. Bank of America said the metal, which reached a six-month high of US$1,779.50 an ounce on Wednesday, would advance to a record US$2,400 by the end of 2014, assuming the stimulus lasted until then. "We view owning commodities and gold in particular as more attractive post the QE3 announcement," BB&T Wealth Management's Walter Hellwig said. "While the QE is there, it does keep the bid under commodities prices and gives them an opportunity to continue to move higher even with a sluggish economy."

Central bank action should boost prices across precious and industrial metals, JP Morgan said earlier this month, citing a probable decline in the dollar. Gold, silver, Brent crude oil and aluminium would probably rally more than other commodities, Standard Bank said.

The Fed will buy US$40 billion of mortgage debt a month and hold the benchmark interest rate near zero until at least mid-2015. The ECB held its benchmark rate at a record low of 0.75 per cent and said its programme would target government bonds with maturities of one to three years. The Bank of Japan unexpectedly expanded its asset-purchase fund by 10 trillion yen (HK$984 billion) this week.

"We're heading for a period of underperformance in commodities after years of outperformance," Ashish Misra from Lloyds TSB Banking Group said. "The effects of a slowdown in China and resumption of normal production trends in agriculture after this year's drought-driven supply shocks should continue to pressure commodity prices downward."

This article appeared in the South China Morning Post print edition as The end of a bumper run